Easy-credit loans can be hard on us all

When a gleaming new house goes up, and the homeowner moves in, most people celebrate that as good growth.

Homeownership only adds stability for families, for neighborhoods, for entire communities, the thinking goes.

But that's not guaranteed. That's why it's important that you read our four-part series on the corrosive aspects of easy-credit loans, which begins today on Page 1A and on charlotte.com.

You need to know how this phenomenon is destabilizing families and destabilizing neighborhoods. And, yes, the impact is so far-ranging that it threatens the health of your entire community.

You need to know that your own government encouraged these loans.

You also should know that you don't have to use easy credit to be burned by it.

Consider that the value of your home could decline simply because houses down the street went on the foreclosure auction block (see charlotte.com for a map of foreclosures in your area).

Consider how the value of most 401(k)s declined when the Dow Jones Industrials fell more than 240 points Tuesday. That slide began with news that mortgage lenders who market to low-income buyers are being hit with an avalanche of foreclosures.

House panel yielded no action

Not that failed home loans would be news to Observer readers.More than a year ago, our reporters revealed that foreclosures had more than quadrupled in Mecklenburg County since 1999. On average, 11 Mecklenburg houses were being sold in foreclosure auction every business day.

That was the highest rate in the entire state. And it continues to climb.

In case after case, we found first-time home buyers who got in over their heads. Little or zero down. Low introductory payments. Then, bam! The actual payments overwhelmed them. Clearly, something was wrong.

In response to our findings, the N.C. House formed a special committee to investigate. Home mortgage professionals acknowledged to the committee that some colleagues contributed to foreclosures by inflating the cost of loans or the price of homes. Joseph Smith, the state's commissioner for banks, asked for new laws to help identify patterns of mortgage fraud.

Not one bill moved out of committee.

Builder's pattern emerges

One year later, the whole country is wiser about the prospect of a massive wave of foreclosures. And this newspaper is wiser about some of the causes, as you will read today.

A team of reporters and editors spent more than six months assembling and analyzing data on the troubled history of a 10-year-old subdivision in Cabarrus County.

Southern Chase is a cluster of "starter" homes where prices originally started below $80,000 built by Beazer Homes USA, one of the nation's largest developers of such housing. Lenders already have foreclosed on roughly one out of every five of its 406 homes.

In all, Beazer has built about 20 starter developments in Mecklenburg County. The foreclosure rates in at least nine are higher than what we discovered in Southern Chase.

No authority compiled those statistics. In North Carolina, no authority has kept track of foreclosures. We learned it by reviewing thousands of public records: county deeds, property records, federal lending data, building permits and bankruptcy filings.

We also went door to door, asking permission to review residents' personal loan and mortgage documents. A number of them agreed.

Gradually, more patterns emerged:

Beazer often exerted control in each step of the home-buying process. It sold the home, selected an appraiser, and even arranged financing.

When customers couldn't afford a down payment, the company covered the cost. It also raised selling prices, at least in part to recover that expense.

It arranged mortgages with low initial payments that shot up after the first two years. In qualifying buyers, it routinely projected their incomes would also increase substantially within two years. In at least some cases, there was no reason to believe that.

In the case of four loans we were able to thoroughly examine, documents either overstated borrowers' income or understated their debts.

As deals came unglued, selling wasn't necessarily an option. Nearly half of the homes now have lower appraised values than when they were new.

If you own a home, you probably recall your first purchase as your most confusing. How much could you really afford? What was an acceptable interest rate? Did you get a fair appraisal? Was that neighborhood a good investment?

At Southern Chase, Beazer packed all of those variables into one shiny box. Moving in was easy. Making it work, it turned out for many, was simply too hard.

Must it have been this way? Read what we learned and judge for yourself.